BROWSE

Passive Activity

What is 'Passive Activity'

Passive activity is activity in which the taxpayer did not materially participate in during the tax year. Internal Revenue Service (IRS) defines two types of passive activity: trade or business activities not materially participated in, and rental activities even if the taxpayer materially participated in them (unless the taxpayer is a real estate professional). Material participation is defined by the IRS as involvement in the activity of the business on a regular, continuous and substantial basis.

The passive activity rules apply to individuals, estates, trusts (except grantor trusts), closely held corporations, and personal service corporations.

Explaining 'Passive Activity'

Income from rental properties is a suitable example of a passive activity. Making a distinction between passive and active income is important because the taxpayer can claim a passive loss only against income generated from passive activities. A passive loss cannot be claimed against active income. Any excess passive activity loss can be carried forward to future years until used, or until it can be deducted in the year when the taxpayer disposes of the passive activity in a taxable transaction.


Further Reading


Passive activity: Millennials and financial advisory
ecommons.cornell.edu [PDF]
… at Cornell, and the Charles H. Dyson School of Applied Economics and Management for … instead makes use of initial investor preferences and automated digital activity (Jung, Dorner, & … affect how comfortable someone is with robo-advisory and other forms of passive financial …

At-risk and passive activity limitations: can complexity be reducedAt-risk and passive activity limitations: can complexity be reduced
heinonline.org [PDF]
… at Cornell, and the Charles H. Dyson School of Applied Economics and Management for … instead makes use of initial investor preferences and automated digital activity (Jung, Dorner, & … affect how comfortable someone is with robo-advisory and other forms of passive financial …

Whither mammon? Postmodern economics and passive enrichmentWhither mammon? Postmodern economics and passive enrichment
journals.sagepub.com [PDF]
… at Cornell, and the Charles H. Dyson School of Applied Economics and Management for … instead makes use of initial investor preferences and automated digital activity (Jung, Dorner, & … affect how comfortable someone is with robo-advisory and other forms of passive financial …

The Passive Activity Provisions--A Tax Policy BlooperThe Passive Activity Provisions--A Tax Policy Blooper
heinonline.org [PDF]
… at Cornell, and the Charles H. Dyson School of Applied Economics and Management for … instead makes use of initial investor preferences and automated digital activity (Jung, Dorner, & … affect how comfortable someone is with robo-advisory and other forms of passive financial …

The shift from active to passive investing: potential risks to financial stability?The shift from active to passive investing: potential risks to financial stability?
papers.ssrn.com [PDF]
… at Cornell, and the Charles H. Dyson School of Applied Economics and Management for … instead makes use of initial investor preferences and automated digital activity (Jung, Dorner, & … affect how comfortable someone is with robo-advisory and other forms of passive financial …

Active and passive learning in agent-based financial marketsActive and passive learning in agent-based financial markets
link.springer.com [PDF]
… at Cornell, and the Charles H. Dyson School of Applied Economics and Management for … instead makes use of initial investor preferences and automated digital activity (Jung, Dorner, & … affect how comfortable someone is with robo-advisory and other forms of passive financial …

A Whirlwind Tour of the Internal Revenue Code's At-Risk and Passive Activity Loss RulesA Whirlwind Tour of the Internal Revenue Code's At-Risk and Passive Activity Loss Rules
www.jstor.org [PDF]
… at Cornell, and the Charles H. Dyson School of Applied Economics and Management for … instead makes use of initial investor preferences and automated digital activity (Jung, Dorner, & … affect how comfortable someone is with robo-advisory and other forms of passive financial …

Timber Growers and the Passive Activity Loss Rules: Some Unintended EffectsTimber Growers and the Passive Activity Loss Rules: Some Unintended Effects
heinonline.org [PDF]
… at Cornell, and the Charles H. Dyson School of Applied Economics and Management for … instead makes use of initial investor preferences and automated digital activity (Jung, Dorner, & … affect how comfortable someone is with robo-advisory and other forms of passive financial …

The Shift from Active to Passive Investing: Risks to Financial Stability?The Shift from Active to Passive Investing: Risks to Financial Stability?
www.tandfonline.com [PDF]
… at Cornell, and the Charles H. Dyson School of Applied Economics and Management for … instead makes use of initial investor preferences and automated digital activity (Jung, Dorner, & … affect how comfortable someone is with robo-advisory and other forms of passive financial …